Select Committee on European Union Written Evidence


Key Principles for Banking Services

  In the important 1997 Interpretative Communication on the Freedom to Provide Services and the Interest of the General Good in the Second Banking Directive (SEC(97)1193), The European Commission stressed four key principles:

    —  The only host State provisions which may impose obstacles to the carrying on of activities receiving mutual recognition by a credit institution "in the same manner" as in its home State are those which protect the general good in the host Member State.

    —  In assessing whether a rule can be legitimately regarded as protecting the general good a number of issues have to be considered including, in particular, whether a rule falls within the scope of a harmonised area, the extent of protection already provided by the rules of an institution's home State, and the degree of vulnerability of the customer—on the last of these the Commission concluded that general good rules could be not imposed when services are supplied to "circumspect recipients" such as large corporates and professionals in the financial sector. (This conclusion built on the principles outlined in the ECJ's insurance judgements of 1986 which had already been recognised in Article 11 of the Investment Services Directive: rules of conduct "must be applied in such a way as to take account of the professional nature of the person for whom a service is provided".)

    —  As regards the Rome Convention's rules on where the law applicable to "consumer" contracts is that of the consumer's country, and in particular as regards the case where protections provided by the consumer's country's "mandatory rules" are applicable regardless of the choice of contract law, the Commission stressed that it cannot be assumed that such rules could satisfy the "general good test" in every case (given the precedence of Community law).

    —  As regards determining the State in which a service is provided, the Commission concluded that the place of provision of the "characteristic performance of a service" is the determining factor: for example, for the purposes of the Banking Directive's notification rules, the provision of distance banking services through the internet would not be considered as the "pursuit of activities in the customer's State".

  The Communication was concerned with interpreting elements of the Banking Directive but the principles were also applicable to investment firms which can be covered by the Directive (if certain conditions are satisfied). Also given the similarity of the language and that the Communication was based on an analysis of general EU law principles, we believe that the same principles apply in the case of investment firms authorised under the Investment Services Directive.

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